Qantas profit rises on Boeing compensation payment

-- Qantas 1H net profit rises to A$111 million from A$42 million on year

-- Underlying pre-tax profit at top end of company's guidance

-- Qantas says losses at international unit shrink substantially

-- Boeing pays A$125 million compensation for 787 delays

SYDNEY--Qantas Airways Ltd. (QAN.AU) Thursday said its first-half profit more than doubled, largely as a result of compensation payments from Boeing Co. (BA) for late plane deliveries and proceeds from a freight asset sale.

Still, Qantas shares rallied 5% early in Sydney as investors took heart that losses at the international unit were around two-thirds smaller than they were a year earlier.

"It's about where the company is coming from and whether its strategy is heading in the right direction. Investors can see it's working, and given Qantas's low valuation you can understand why the market is taking this positively," said Peter Borkovec, a fund manager at White Funds Management, which holds a small amount of Qantas stock.

Net profit for the six months to Dec. 31 rose to 111 million Australian dollars (US$113.9 million) from A$42 million a year earlier. The result included a A$30 million gain from the sale of a stake in road freight business StarTrack.

Underlying pre-tax profit rose 10% to A$223 million, at the upper end of the company's own guidance of A$180 million-A$230 million. The figure, however, included A$125 million in compensation payments from Boeing over the late delivery of its glitch-plagued 787 Dreamliner jet.

Qantas last year posted its first annual loss since it was privatized by the Australian government in 1995 after it was buffeted by industrial action that prompted the temporary grounding of its entire fleet. Qantas, like its global peers, is also having to grapple with fragile consumer confidence, soaring jet fuel costs and intense competition from state-backed Middle Eastern carriers.

The Sydney-based airline has been attempting to stem losses at its international unit by cutting thousands of jobs, terminating poorly performing routes and expanding in Asia. It also wants to forge alliances with rivals to cut costs and is nearing full regulatory approval for a proposed tie-up with Emirates Airline that will see the two companies co-ordinate schedules, ticket price and frequent flyer programs.

Restructure charges including redundancy payments totalled A$136 million during the half. But on an operating earnings basis, losses at the unit narrowed to A$91 million from A$262 million a year earlier.

"Qantas International is well advanced in its turnaround plan," Chief Executive Alan Joyce said in a statement.

Bank of America Merrill Lynch this month estimated the Emirates alliance, expected to gain final antitrust approval in March, could provide Qantas with another A$150 million in annual benefits.

On the domestic front, Mr. Joyce said margins are continuing to come under pressure as Qantas tries to keep up with capacity expansions from Virgin Australia, which recently put business class seats on domestic flights for the first time for a slice of Australia's lucrative premium domestic travel market.

Underling earnings before interest and tax at the domestic unit fell to A$218 million from A$328 million a year earlier.

Qantas, which didn't provide guidance for full-year profits, said it expected the operating environment in the second half to remain challenging and volatile. It estimated fuel costs around A$2.25 billion, and flying capacity in its domestic business to grow by 5-7%.

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